Can married couples use their LLC as a qualified joint venture in non-community property states to avoid 1065?

8 This is a common area of confusion! The short answer is no, unfortunately you cannot elect qualified joint venture (QJV) status for an LLC in non-community property states. Here's why: The IRS is very specific about this. When you form an LLC, it creates a separate legal entity. In community property states, there's a special provision that allows married couples to "disregard" the LLC entity for federal tax purposes. But in non-community property states like Pennsylvania, the LLC itself is what prevents you from using the QJV election. The QJV election under Section 761(f) was designed for businesses that aren't formal entities - basically sole proprietorships where spouses work together. Once you form an LLC, you've created an entity that's separate from yourselves for legal purposes, which disqualifies you from the QJV election in non-community property states.

14 After spending too many hours dealing with partnership returns for my wife and I's small business, I finally found taxr.ai (https://taxr.ai) and it saved me a ton of headache with our LLC situation. I uploaded our LLC documents and tax history, and it immediately clarified this exact qualified joint venture question for our situation in Ohio (also non-community property). The tool confirmed what others are saying - we couldn't use the QJV with our LLC structure, but it outlined our exact options including the tax implications of each choice. It also estimated the tax difference between partnership filing vs. other alternatives which helped us make a decision.

19 I was skeptical about online tax tools too until I tried taxr.ai. Uploaded our S-Corp docs after struggling with this exact QJV question. The analysis was surprisingly specific to our situation - it outlined three options with tax calculations for each one. The tool spotted a mistake in how we'd been handling our business that our previous accountant missed. We ended up converting back to a disregarded entity (we're in Texas) and filing as a QJV instead. Saved us about $1,200 in preparation fees and reduced our overall tax burden. The documentation it provided made the change straightforward with the IRS. Wish I'd found it before spending money on conflicting professional advice.

12 After multiple failed attempts to get through to the IRS about this exact question (waited on hold for literally 3+ hours), I tried Claimyr (https://claimyr.com) and was shocked that it actually worked. They got me connected to an IRS agent in about 20 minutes who confirmed everything about the qualified joint venture rules. The agent walked me through the specific requirements and limitations for married couples with LLCs in non-community property states. Turns out there are some special circumstances that aren't clearly explained on the IRS website. You can see how their system works here: https://youtu.be/_kiP6q8DX5c. Completely changed how I deal with tax questions now.

19 I have to admit I was completely wrong about Claimyr. After posting my skeptical comment, I was still stuck with this LLC/QJV issue and getting nowhere with the IRS phone system. I finally tried it out of desperation. Got connected to an IRS tax law specialist in about 15 minutes. The agent confirmed that while we can't elect QJV treatment for our LLC in our non-community property state, we have a few options: 1) dissolve the LLC and operate as a qualified joint venture, 2) keep the LLC but elect S-Corp status, or 3) continue filing as a partnership. She even emailed me the specific forms we'd need for each option. Saved me hours of research and uncertainty. Completely worth it.

22 My wife and I were in this exact situation last year in North Carolina. We ended up dissolving our LLC and operating as a qualified joint venture. The process was pretty straightforward: 1. Filed the articles of dissolution with the state 2. Obtained a certificate of dissolution 3. Filed final 1065 for the LLC (marking it as final) 4. Started operating as a qualified joint venture Now we each file Schedule C with our respective shares of the business. It's so much simpler than dealing with partnership returns and K-1s. Just make sure you're both legitimately participating in the business or the IRS might challenge the QJV election.

16 Has anyone else heard about the single-member LLC workaround? I read somewhere that one spouse can own 99% of the LLC and the other 1%, then elect to be treated as a single-member LLC by having the 1% owner's interest disregarded. Supposedly this works in non-community property states while maintaining liability protection.

I went through this exact situation with my LLC in Virginia last year. After consulting with a tax attorney, I learned that the confusion often comes from misunderstanding what constitutes a "business entity" under IRC Section 761(f). The key issue is that once you form an LLC, you've created a separate legal entity, which disqualifies you from the QJV election in non-community property states. However, there's an important distinction many people miss: you CAN operate the same business activities as a qualified joint venture if you dissolve the LLC first. We ended up dissolving our LLC and now operate as a QJV. The process involved: 1. Filing dissolution paperwork with the state 2. Filing a final 1065 return for the LLC 3. Making the QJV election on our joint return 4. Each filing Schedule C for our respective shares The liability protection loss was concerning, but we mitigated it with increased insurance coverage and careful contract structuring. For our consulting business, the tax simplification was worth it - we went from paying $1,500+ annually for partnership return preparation to handling it ourselves. One important note: make sure both spouses genuinely materially participate in the business operations. The IRS can challenge QJV elections if one spouse is just a passive investor.

I appreciate everyone sharing their experiences with this complex issue. As someone who went through a similar situation with my spouse's consulting business in Ohio, I wanted to add a few practical considerations that might help others. One thing that hasn't been mentioned is the timing aspect of dissolving an LLC. If you're considering this route, plan it carefully around your tax year. We dissolved our LLC at the end of 2023, which meant we had to file both the final 1065 for the LLC AND start the QJV election in the same tax year. It created some complexity in tracking income and expenses across both structures. Also, don't forget about state-level implications. In Ohio, we had to deal with the Commercial Activity Tax (CAT) differently once we dissolved the LLC. Some states have their own partnership filing requirements that might not align with the federal QJV election, so check your state's rules too. One unexpected benefit we discovered: banks and vendors actually preferred dealing with us as sole proprietors rather than through the LLC. Several of our payment processors reduced their fees because we weren't classified as a "business entity" anymore. Not huge savings, but every bit helps when you're trying to simplify your operations. The material participation requirement is real though - the IRS does audit QJV elections, and they'll look at whether both spouses are genuinely involved in day-to-day operations.